Definition of Warranties and Importance of the Same to Companies

This brings us to the distinction between "representations" and "warranties" and the reason for emphasizing the distinction. A statement by the insured, if construed merely as a representation, need be only "substantially correct", and before a forfeiture of the contract can occur because of the incorrectness of the statement, the insurer must not only prove the statement false but must show that such falsehood was of material consequence. "Materiality", the courts have usually decided, is measured by the following consideration: Was the inaccuracy or falsehood of such material importance as to have induced the company, had the information been correct, to have declined the risk or to have altered the rate?

If, on the contrary, statements are construed as warranties, they must be "absolutely and literally true" and a forfeiture will result, unless policy provisions stipulate to the contrary, if merely the falsehood of the statement can be shown, irrespective of the materiality of the same. In other words, if statements are construed as warranties the insurer is relieved of the burden, usually a difficult one in jury trials, of proving materiality, and is obliged simply to establish the incorrectness of the statement. As is well stated in one case: "The purpose in requiring a warranty is to dispense with inquiry, and cast entirely upon the assured the obligation that the facts shall, be as. represented. Compliance with this warranty is-a condition precedent to any recovery upon the contract. It is, therefore, that the materiality of the thing warranted to the risk is of no consequence".